Regulation (FOIR) has thrown the book at Conseco, alleging that the
US life insurer is guilty of mismanagement and withholding
information “vital to performance” of the FOIR’s regulatory
duties.
The FOIR has ordered Conseco to show cause why it should not be
suspended or have its license to operate in the state revoked.
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The FOIR alleges that Conseco failed to notify it that the
system on which its Lifetrend products were administered did not
fully support the analysis or calculation required to compare the
cash surrender value to the applicable guaranteed values. The FOIR
also alleges that Conseco knew for at least three years that the
Lifetrend product was not being properly administered but took no
known action to correct the problem.
In addition, the FOIR also alleges that Lifetrend policyholders
were misled in that, over a three-year period beginning in 2006,
Conseco issued annual statements to them that failed to indicate
that their policies were underfunded or that it believed
policyholders should be paying additional expenses or costs related
to their policies.
According to the FOIR Conseco sprung an unpleasant surprise on
5,000 Lifetrend policyholders in letters mailed on 27 October 2008
in which they were informed of an increase in their “monthly cost
of insurance rates and expense charges.”
In November 4,500 of the policyholders were also told that their
policies were underfunded and that they must submit payments for
the “shortfall” no later than 3 January 2009.
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By GlobalDataIn December, at the urging of the FOIR and other regulators,
Conseco told Lifetrend policyholders to disregard all previous
notices sent to them and that it would suspend implementation of
collection of additional premiums for the product.
Conseco, which emerged from Chapter 11 bankruptcy in 2003,
reported a net loss of $182 million in the third quarter of 2008
and a loss of $675 million in the first three quarters of the
year.
The insurer ended the third quarter with total assets of $32.1
billion.
